Security tokens are set to change the face of the global investment industry especially by democratizing access to opportunities that were hitherto available to only accredited investors.
The traditional investment market was not set up to enable small investors invest directly due to high investment entry threshold. Fractional ownership using tokenization solves this problem.
What are security tokens?
They are tokens that represent tradable financial assets they are also called a digital version of traditional securities, as they can represent a share of a company or tangible assets like a real estate property. They present an easy and inexpensive way for private companies to raise capital through a security token offering.
A Security token offering; is the process of selling security token to the public, offering investors a secure and direct investment in a financial asset
Understanding the benefit that security token provides small investors
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Private market investing
Security tokens provides an opportunity for small investors to invest in assets that are not listed on the public stock exchanges. Like investment in equity of privately owned companies
Other Examples of private market investment may include infrastructure, real estate, music royalties etc.
They were predominantly only accessible to accredited investors; According to the united states security and exchange commission, to become an accredited investor you need to have a net worth of 1 million dollars excluding primary residence. or an annual income of 200,000 dollars.
Small investors do not fall into this classification and are cut out because of the huge minimum capital requirements. But now, by divvying up securities into fractions, small investors can buy securities directly for issuers, this presents a great opportunity for them to invest in up-and-coming companies, or assets with long-term opportunities, and benefit from their potential increase in value.
Furthermore Tokenization of private securities solves the problem of illiquidity
2. Providing Liquidity to Illiquid markets
Private markets are generally known to be long-dated i.e. Investors money can be locked up for a long time period before they can sell. security tokens have the unique ability to facilitate liquidity.
Due to fractionalization, private markets can now have many individual investors participating in them- who also have the opportunity to exist without waiting for so long due to the availability of digitalized secondary markets.
- Secondary market trading through accredited security token exchanges
Every wallet can trade digital security with every other wallet through accredited security token exchanges.
Investors can trade amongst themselves and prices may be driven by the demand and supply of these securities.